Coach is my major accumulation lately. I was somewhat hesitant below $20 since I ain't sure whether they can still sell.
With new focused price range for a bag moving down to $200-300, with Japan economy shrinking at unprecedented downward spiral, Coach still maintained decent profit margin and a flattish sales in Japan. That tells you the holding power of this franchise.
Although operating margin is down from 39% level to 29%, large portion of the downslide was due to the deployment into China and new merchandise ramp-up. Not a lot of retailer stocks are still executing expansion strategy. I like their confidence. Unlike stubborn ANF and RL, which spents no effort but simply focuses on defending their premium value, Coach is fully aware of the market demand for reasonably priced aspirational merchandises and shift to bag price range of $200-300. Coach is fully adaptive into the trend-down phenomenon of this new market. This new strategy, I believe, will help them taking shares from even higher premium bags such as Gucci.
Coach and Guess are two stocks playing into China booming economy. These two companies are the rare two not crawling back to their caves and giving up all expansion plans. I believe especially Coach will establish their franchise value over Far East after this recession is over.
We haven't seen much effect of that $50 mils SG&A cost cutting program. With or without it, Coach should be able to make $1.85-$1.90 this year. For that (P/E 12), current price is cheap compared with higher P/E premium brands, RL (15.3), TIF (18), ANF (16.4). The importance is that RL, TIF and ANF are still holding on the same old stiff strategy in holding on their premium brand value, Coach is fully adapting into this new economy.